The State: Made in Delaware No More

Many factors conspire to paint a murky future for local manufacturing. One might ask if there's a future at all.

by Bob Yearick

photograph by Tom Nutter

Phillip Bannowsky is 62. His knees are shot and so are his shoulders, the result, he says, of working 23 years on the assembly line at DaimlerChrysler’s Newark plant, mostly in the body shop, assembling shells.

Bannowsky retired in 2001 after a total of 31 years with the automaker, serving in management and as a union rep his last seven years. He got his college degree while working there, and he may be the only Chrysler pensioner ever to move into a position as adjunct instructor of English at the University of Delaware. He remembers his time on the line as one of opportunity mitigated by ever-present pressure and stress, and occasional threats of shutdown.

“The wages and benefits are good,” he says. “But you’re working in a place where the pace of work is controlled by somebody else entirely. All they have to do is speed up the line or come up to you and say, ‘You have to do this much more on your job,’ and you just have to do it. It’s a chronic issue of speedup that can be really rough on a person. It’s grueling, difficult work. They did improve some of the design of the jobs, so there are fewer jobs that are total killers. There’s a few. But the pace of work is just so intense.

“And yet you’re there thinking, ‘Here’s my chance to have a decent middle-class, working-class job. I can have a vacation. I can send my kids to college. I can afford a decent car. I can live the American dream. Or I could lose it all.”

Manufacturing in the United States has been declining since World War II. In 1946 one of every three workers had a job in manufacturing. In October 2005 a mere 10 percent of the U. S. workforce was employed in the manufacturing sector. As is so often the case, Delaware reflects the national trend.

“During the war, nearly 50 percent of the jobs in Delaware were manufacturing,” says Ed Simon, director of labor market information for the state Department of Labor. “We had ship building, steel, leather tanning and chemicals, of course. Then in the ’60s and ’70s we lost jobs to the South, especially apparel and textiles. Now the jobs are going to China and Asia.”

In 1990, Simon reports, Delaware manufacturing firms employed 45,800 workers. In 2001, there were 39,400 employees at 665 companies. As of June 2006 those numbers had dwindled to 33,100 and 647, respectively.

Manufacturing jobs are especially valuable because, traditionally, they pay well—about $10,000 a year more than non-manufacturing blue collar positions. According to Simon, the average Delaware manufacturing job paid $54,386 last year. The 15,200 Delawareans engaged in making durable goods—automobiles, steel, plastics, furniture, etc.—were at the top of the scale, with average income of $61,358. Bringing down the average was the poultry industry, with 7,800 people making $27,639 per capita.

Then came DaimlerChrysler. With a profit of just $144 per vehicle in North America last year, Chrysler was under pressure to cut costs. Its Newark plant was a good target. Both of its products, the Dodge Durango and Chrysler Aspen—SUVs with less-than-stellar fuel economy—have experienced sagging sales.

The ripple effect of a Chrysler shutdown, scheduled for 2009, will reach far beyond the 2,400 plant employees. “The multiplier is about 3 to 1,” says Jim Wolfe, president of the Delaware State Chamber of Commerce and the Delaware Manufacturers Association. “For every $1,000 that’s earned at the Chrysler plant, there’s another $3,000 going out into the community, whether it be jobs, suppliers, taxes, grocery stores or purchases in other areas.”

Wolfe speaks with special authority about Chrysler. He was the plant manager in Newark from 1992 to 2004. “When I was there, we continually did studies,” Wolfe says. “Where can they cut? What makes sense? That’s normal business, though. We used to do that four and five times a year.”

The Chrysler plant represents an almost classic case study in why manufacturing jobs are declining in Delaware and elsewhere. The primary villain is technology, according to Judy McKinney-Cherry, director of the state Economic Development Office. “In Delaware, while we have seen some decrease due to competition from offshore manufacturers, the vast majority of changes are technology-based,” she says.

Better technology—usually in the form of computerization—delivers greater productivity with fewer employees. That’s a one-two punch that has knocked many workers from high-paying manufacturing jobs into low-paying sectors of the economy.

At Chrysler and other auto plants, robotics replaced people in such areas as the paint finishing lines. The impact of technology is apparent on a smaller scale at places like Associates Graphic Services. The 75-person Wilmington firm has two six-color presses, each worth $2 million. “Ten years ago it took three guys to run these presses,” says owner Charlie Copeland. “Now it takes one. That means the salary component of doing business becomes less, but also the jobs go away.” (The tractor-trailer-size presses themselves are also vulnerable. “With the rate of technological change, they have about a seven-year life expectancy,” Copeland says.)

Again, like the rest of the country, Delaware manufacturing jobs suffer from outsourcing or offshoring. Says Wolfe, “When you look at the cost of labor in China and in Taiwan and even in Mexico, where you’re paying 50 cents or a dollar an hour, and here you have to pay from $15 to $30 an hour, it’s very difficult to hold manufacturing jobs.”

Then there are the problems unique to Delaware. The first one simply can’t be changed: its location. It’s a disadvantage, especially for automakers. “Twenty years ago there were 10 auto manufacturers on the East Coast,” says Wolfe. “Now there are only three, and one of them, Ford, says they’re going to close their Virginia plant. The others are in Delaware.”

The problem with the East Coast is that it’s too far from suppliers and most customers. “When you look at what it takes to run an auto plant, it’s so expensive to haul material,” Wolfe says. “Eighty to 90 percent of the parts come from the Midwest for the Durango or the Solstice (built at the General Motors plant in Newport), and then the completed vehicle has to be shipped some place. If you’re all the way out on the East Coast, some of your sales are here, but not all. And I know from my time at Chrysler as plant manager, the penalty for building vehicles on the East Coast was between $400 and $500.”

Other factors that make Delaware an especially challenging site for any business—manufacturing and otherwise—are worker’s compensation insurance premiums and the gross receipts tax. Local employers pay the third highest worker’s comp rates in the country. Overhauling worker’s compensation laws that, aside from a few administrative tweaks, hadn’t been touched in 70 years was the first order of business for the General Assembly that convened in January.

The state gross receipts tax, meanwhile, has long been a target of state Republicans. Most states don’t have such a tax. The taxes were tweaked in 2005, but with looming competition from slot casinos in Pennsylvania and Maryland, Delaware may need the revenue. In 2005 the state’s general fund collected $179.3 million from gross receipts taxes.

In a speech to the New Castle County Chamber of Commerce last November, Lieutenant Governor John Carney stated that automakers already pay lower gross receipts taxes in Delaware than they did in past years and expressed doubt that eliminating the tax would add significantly to their bottom lines.

Conversely, there are some factors that work in Delaware’s favor. “Delaware’s business climate in general is very positive,” Wolfe says. “We can fix the things legislatively that need to be fixed, and we’re already pretty good versus competition when it comes to taxes.”

While noting that the state’s permitting process for new industries is too slow and “needs to be fixed,” Wolfe also praises John Hughes, Delaware’s secretary of Natural Resources and Environmental Control, who has been instrumental in streamlining the process. Hughes and other state officials, including those from DEDO,received the Speed Demon award from GM last September for reducing the turnaround time for air quality permits by 50 percent through value stream mapping. An element of lean manufacturing, value-stream mapping identifies inefficiencies by creating a diagram of the physical and information flow of a process.

Among Speed Demon honorees were officials from the Delaware Manufacturing Extension Partnership. Created in 1994 and backed by federal and state funds, DEMEP helps manufacturers improve their bottom lines by reducing lead time, decreasing defects and increasing productivity. Its services are used by more than 100 local manufacturers.

McKinney-Cherry says DEMEP is a valuable ally in sustaining and growing Delaware’s economy. She points out that executive director Steve Quindlen and others at DEMEP are shifting some of their focus from lean manufacturing principles to new product development and innovation. “That’s really the future for our state—innovation, using research and development and the intellectual capital that exists here to help our existing companies change, modify, improve and bring new products to market,” McKinney-Cherry says.

She cites DuPont’s five-year capital investment commitment to creating a state-of-the-art Innovation Center at the Wilmington Experimental Station. The partnership between the state and DuPont includes an $80 million capital investment by the company in the Experimental Station laboratories, a donation of intellectual property to Delaware’s Emerging Technology Center and a new biotechnology program for high school students. DuPont is collaborating with the state to conduct biotechnology seminars for high school students, providing six programs a year at the center.

“So we are using the intellectual capital of a legacy business to seed new business creation in the state,” says McKinney-Cherry. “And in most cases that will be manufacturing.”

Many observers agree that smokestack-less biosciences offer the best opportunity for Delaware’s manufacturing future. Copeland, a leader in the state GOP, blames environmental regulations for limiting the options.

“You could not put a chemical manufacturing facility, even a ‘clean’ one, in Delaware because the regulatory environment wouldn’t have it,” Copeland says. “There are clean technologies within the chemical industry, but as soon as the term ‘chemical’ is used, public opinion would stop the project. No project, then no manufacturing jobs.”

Environmentalists would point out recent approval of new chemical-related sites, such as a DuPont acid plant near Motiva’s Delaware City refinery and a biodiesel plant in Clayton. “Manufacturing has historically paid well compared to service industries and agriculture,” says Alan Muller of Green Delaware. “But a high price has been extracted. Delaware is one of the most polluted and unhealthy places in the developed world.

“Our challenge is to obtain the benefits of manufacturing while minimizing the downside. Clean manufacturing is technically possible but politically difficult to require due to the chokehold industrial and union interests have on Delaware politics. Delaware recognized this many years ago in the Coastal Zone Act, banning new heavy industry in the ecologically sensitive Coastal Zone. But this law is the exception. Overall, regulation is weak and pollution is legal.”

As 2006 came to a close, state agencies were scrambling to save the Chrysler business. Among them was the Delaware Automotive Cluster Alliance, created in 2003 by the governor and the Delaware Economic Development Office. The alliance and Governor Minner had spoken directly with Chrysler CEO Tom LaSorda in an effort to save the plant.

Wolfe says communication is key. In that, Delawareans excel.

“Because the state is small, people sit down and talk. They don’t close their doors,” Wolfe says. “And when we have a problem, we take on that problem. It doesn’t matter if you’re a D or an R, you’ve gotta fix it, so you work on fixing whatever issues you have, like worker’s compensation.”

In the face of all this optimism, Ed Simon offers a sobering reality. “We project that employment in manufacturing will continue to decline, but at a slower pace. Our latest projection, which runs to the year 2014, has a forecast of 31,400 manufacturing jobs.”

The number drops precipitously with DaimlerChrysler’s closing. Then what? How will the economy, the state’s very psyche, be impacted by the loss of 2,400 jobs—fully 7 percent of the current manufacturing workforce? Perhaps the more important question is: What will it mean to each of those 2,400 individuals?

Roswell Stone is a friend of Bannowsky. Stone hopes to achieve what Bannowsky has: retirement on a full pension from DaimlerChrysler. The 60-year-old Bear resident has worked at the Newark plant for 18 years.

The plant closure will not be a disaster for Stone. He hopes to be offered one of several packages that combine unemployment and supplements. “That would see me through until I reach 62, and then they would just retire me out.”

He does side jobs seal-coating driveways and parking lots. When the plant shuts down, “I would just pick up on that some,” he says.

Many of his fellow employees can’t expect such a smooth transition to retirement. “A lot of them are going to have problems because there are a lot of young guys there with 10, 12, 14 years,” Stone says, “and they still have a long way to go to retirement. Some of them, that’s all they know, is Chrysler. I think it would hurt the economy in Delaware a lot.”

Unlike Bannowsky, Stone has come through his automaking career relatively unscathed. He had an operation for carpal tunnel and another to replace a tendon in his thumb after a lift gate slammed down on it. And, “like every 60-year-old,” he has some lower back pain. “Of course,” he adds, “I don’t lift anything heavier than a spray gun. If I had to lift drive shafts all day long, I might be telling a different story.”

All in all, he’s been happy at Chrysler. Sounding a bit like Phillip Bannowsky, he adds, “I don’t have an education, and I think it’s pretty good money for somebody without a college education.”